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Sir i dont understand how they have calculated dividend valuation model. How they have calculated and how they have distributed the dividend in option 1 option 2 ? I didnt get anything sir
The dividend valuation formula gives the market value ‘now’ (time 0) assuming that the first dividend is payable in 1 years time.
When the first dividend is in 3 years time (as it is here) then because it is 2 years later than time 1, the figure from the formula is the market value 2 years later as well – i.e. at time 2. Therefore it needs discounting for 2 years to get the current market value.I do suggest that you watch my free lectures on this because I explain this point with examples (and it is common in the exam).
The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
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